More people than ever are starting a side hustle to help ease the financial burden of this pandemic and it's great but what next?
So, you've been at home on furlough and are bored with spare time or the financial implications have lead to you turning your craft into a little business. Or you've discovered the joys of the likes of The Body Shop, Avon or Usborne Books which are all easy to start and with some effort can turn into quite a lucrative side hustle.
What should you be doing though to make sure you keep on the right side of the tax man?
Firstly... keep well organised records. How fast your business grows and how much you make could determine how you do this. For instance if you are making just a few sales here and there it would most likely not be financially viable to use anything more powerful that an Excel Spreadsheet. However if your business is growing fast and you struggle to keep on top of the paperwork I would recommend investing in some software. There are many to choose from and it is very much personal choice but my personal recommendation is Xero. I find that it is the most user friendly of the options.
The information you need to keep is all business related purchase invoices/receipts and all sales invoices or some proof of sales if you do not raise invoices. I am told that in the case of The Body Shop they send a commission slip (I assume it would be similar for other direct marketing companies) detailing how much you have sold and what your commission is on those sales.
Second... you will need to inform HMRC of your income. This differs slightly depending on your situation. If you are not employed at all then you can earn £1000 before you need to declare. If you are employed though you need to inform HMRC of all untaxed income and you will need to do this through a Self Assessment. You will need to register for this and you cannot complete an assessment without the UTR that HMRC will issue once done. I would always recommend registering for a Self Assessment as soon as possible but there are some important dates to remember.
If the income to be declared relates to tax year 2019/20 then you have until 5th October 2020 to register which can be done by following this link https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed likewise, if the income is in this tax year you have until 5th Oct 2021 and so on.
Not many choose to file their assessment on paper anymore but if that is your preferred method then the deadline for doing so is always 31st Oct. If filing on line then you have until 31st Jan however that is also the deadline for paying any liabilities.
Thirdly... if you are unsure about any of the above or don't have the time please engage the services of someone that does. Bookkeepers and Accountants have much experience in keeping the right records, compiling and calculating the returns. They are likely to do so quickly and efficiently and possibly find things to claim for that you may not.
So to recap...
Keep well organised records
Inform HMRC (when you've earned £1000 if it's your only income)
Register for Self Assessment by 5th Oct
File paper returns by 31st Oct
File online returns by 31st Jan
Pay any liabilities by 31st Jan
Engage the services of a Bookkeeper or Accountant if you are not confident in any of the above
I do love a small business and try to support them where I can so I wish you all the very best in your new venture's.
If you need any help you know where to find me!